Question: When an assessee transferred one residential house during the year, how the assessee is eligible for saving tax on such capital gain of house?
Profit on transfer of residential house property used for residential section 54:
As per section 54 of Income Tax Act, 1961 an Individual or HUF can save tax on long term capital gain on sale of residential house property.
Assessee using a house property (resident or let out) for more than 3 year from date of purchased, and such house is sold, long term capital gain arise on such transfer is exempted if assessee has invested into purchase or construction of new house within specified period from date of sale of such house.
Purchase of house:
Assessee must be Purchase another house within one year prior or 2 year after the transfer date of residential hose property.
Construction of House:
Assessee must be Construction another house within 3 year after the transfer date.
(assessee can start Construction of new house before the transfer of old house.)
Cost of Building includes price of land.
Quantum of deduction:
Capital Gain is more than Cost of Acquisition of new house:
As per section 54 of Income Tax Act, 1961, assessee is required to invest minimum amount equivalent to capital gain arisen on sale of house to nullify income tax on capital gain.
Capital gain old house = Long term capital gain of old house – Cost of acquisition of new house.
If the new assets is transfer within 3 year from date of acquisition or completion of construction, COA of new assets = NIL
Capital Gain is less than Cost of Acquisition of new house:
When assessee has invested more than long term capital gain amount in purchase or construction of new house, there will be no tax liabilities on such capital gain.
Capital gain old house = NIL (L.T.C.G - COA of new house).
Lock In period:
Assessee can not sale or transfer new house from date of purchase of the house, otherwise above exempted capital gain will be withdrawn.
Deposit in capital gain scheme 1988:
An assessee is not able to invest in new house before filling of due date of return, he can still get exemption from income tax, if such gain is deposited into capital gain deposit scheme 1988. Assessee has to deposit such capital gain amount into bank before due date of return and file deposit slip with return.
Such accounts can be opened as saving accounts or fixed deposit.
The deposit amount should be used within 3 year from date of transfer otherwise unutilized money of that account will be taxed in previous year when 3 year of transfer of assets is lapse.
Assessee can have purchase more than one house to claim exemption of this section.
Exemption of capital gain
Sold Capital gain Investment amount Nature of investment Section
House Long Term Long Term capital gain House 54
Specified securities 54EC
Land Long Term Capital gain amount Land 54B
Short Term Specified securities 54EC
Any other assets Long Term Sale consideration House 54F
Specified securities 54EC
